Cabin owners lose tradition as Idaho privatizes lots

It was always the same for Bonnie Dubinin, that exquisite feeling she got when the lake first came into view.

She’d see that long stretch of blue surrounded by green trees and think of the days to come. There would be swimming and fishing and berry picking, and quiet nights telling ghost stories while the campfire burned low.

Her grandfather leased the property from the state of Idaho in 1928. It’s one of 354 Priest Lake “cottage sites” that generate revenue for public schools and other state endowment beneficiaries.

But the way lease rates are rising, Dubinin and her extended family aren’t sure how much longer they’ll be able to keep the cabin. The prospect of losing it was a distant possibility at first, but now it’s something they measure in terms of weeks. Barring a miracle, it will happen before the end of this year.

“I said my goodbyes when I left last year, but we managed to hold on a while longer,” Dubinin said. “I’ll go up this weekend and say goodbye again.”

Many may call it quits

She won’t be alone. By some estimates, upward of 120 Priest Lake lessees could join the exodus, walking away from sites that have been in their families for generations.

If they do, they’ll be required to remove any improvements they made – cabins, boathouses and docks – while leaving behind the wells, septic systems and roads they installed at their own expense and often at the state’s request.

Many feel they have no other choice. The average annual lease payment at Priest Lake has increased 154 percent since 2010. It’s set to jump from about $10,000 this year to nearly $18,000 in 2015. For Dubinin’s family, the fee will exceed $24,000 – more than they can afford, even with six siblings sharing the load.

If the market for cabins was more robust, lessees would at least have the option of selling their cabins and other improvements. However, uncertainty over the lease terms and over the state’s plans has scared away many potential buyers.

The situation leaves a bitter aftertaste to what Dubinin sees as one of the blessings of her life.

“For 86 years we had a cooperative, long-term relationship with the state,” she said. “We cleared the land, installed roads, put in septic systems. The state would mark trees and we’d remove them. We did everything we could to maintain and preserve the land. We trusted the state to work with us – but now that they feel like they can make some money, they’re saying ‘You’re out of here.’ It’s not right. Morally and ethically, this is not OK.”

A mandate to maximize revenue

This sense of broken trust stems, to some extent, from the State Land Board’s financial obligations.

The board – comprising the governor, attorney general, secretary of state, state controller and superintendent of public instruction – is charged with overseeing Idaho’s 2.4 million acres of trust lands. It has a constitutional mandate to maximize long-term revenues for the endowment beneficiaries, yet critics suggest it has fallen short of that goal with respect to the cottage sites.

The lakeside lots were initially leased for as little as $10 per year. Rents stayed relatively low and affordable for decades, with no annual increase from 1947 to 1961.

The Land Board changed its approach in 1988, setting the annual fee at 2.5 percent of the lot’s appraised market value (not including improvements). However, the increase was phased in over 10 years to prevent any big spikes in rent.

Lessees also benefited from legislation approved in 1990, which shielded them from conflict auctions. That meant they didn’t have to bid against other interested parties when their leases expired every 10 years.

This implied “right of continuation” encouraged many lessees to begin building more expensive homes and improvements. It allowed them to earn substantial premiums as well. As the demand for lake properties improved, they could sell their cabins for much more than appraised value because the new owners didn’t have to worry about losing the lease to a higher bidder.

In 2010, the Land Board noted that lessees garnered most of the profit as cottage sites changed hands, rather than the endowment beneficiaries.

Getting out of the lease business

That’s when the pendulum began to swing the other way.

The board agreed to bump annual lease fees to 4 percent in an effort to generate more revenue. It also decided to sell the lake properties and get out of the cabin-site leasing business altogether, saying it could invest the proceeds in other land assets and earn a higher return.

Most importantly, the Idaho Supreme Court determined that the 1990 legislation was unconstitutional.

“That was a game-changer,” said Tom Schultz, director of the Idaho Department of Lands, which manages the endowment lands under the direction of the Land Board.

The 2012 ruling exposed lessees to competition when their leases expired. By most accounts, this devastated the market for cabins. Since buyers could no longer depend on retaining the lease beyond its current term, they were unwilling to pay even appraised value for the improvements, much less offer a premium.

At the same time, the state ordered new appraisals in preparation for selling the cabin sites. They increased market values for Priest Lake lots by an average of 80 percent, driving up the 2015 lease rates.

To date, Schultz said about 100 Priest Lake lessees have agreed to extend their leases for an additional five to 10 years. More than 60 will participate in an Aug. 28 auction at the Coeur d’Alene Resort, hoping to buy their lots from the state.

That leaves about 190 who are still trying to decide what to do.

It’s unclear how many will ultimately walk away.

Schultz thinks their ability to sell the improvements will stabilize over time, as more lots pass into private ownership and as public confidence in the process improves.

Consistent financial return

Having trusted the state in the past, Dubinin and her family are reluctant to do so again.

The lessees “haven’t been able to count on anything,” said Dubinin’s sister, Cotton Crider, who lives on a farm outside of Oakesdale, Washington. “They keep changing the rules so it feels like we have to walk away.”

State Rep. John Vander Woude, of Nampa, a frequent critic of the Land Board, said lessees are justified in feeling betrayed.

“They do have some legitimate concerns that they’ve been led down several different paths,” he said.

Perhaps the most misleading sentiment is that selling the lake lots is primarily a financial decision.

If maximizing the return for beneficiaries is the state’s primary goal, Vander Woude said, these recreational properties out-perform most other trust land categories.

For example, the state collected more than $5.5 million from 507 cottage site leases last year, with minimal expense or overhead. Its 1.4 million acres of rangeland, by contrast, earned less than $700,000 in net revenue.

“If you look at all the endowment assets, the cabin sites aren’t the ones we should be dumping first,” Vander Woude said.

The more likely motivation for selling the lots, he said, is politics.

The elected officials on the Land Board are caught in an untenable position, either serving as Scrooge-like landlords who demand every penny their tenants can pay, or betraying the trust beneficiaries by favoring longtime lessees with more affordable rents.

One way out of the dilemma is to sell the lots – as Gov. Butch Otter essentially acknowledged when the Land Board unanimously agreed to move forward with the plan.

“I’m willing to do anything to divest ourselves of these headaches,” he said in 2010.

That her family’s long history at Priest Lake has become a headache the state prefers to avoid is something Dubinin just doesn’t understand.

“It’s a place that runs in our blood,” she said. “It’s a great piece of property today, but what’s it going to be tomorrow? Has the state really thought through what’s going to happen? They need to find a fairer way to do these things.”

At a minimum, she’d like the Land Board to cancel the requirement to remove the improvements before people abandon a lease.

“That’s just a slap in the face,” said Rosemary Hendrickson, Dubinin’s 90-year-old mother. “It would be a crime to tear down those beautiful old homes.”

Hendrickson has been going to the lake since she was 4 years old. It’s where she had her honeymoon, where her family strengthened its bonds. It’s provided a lifetime of memories for her, her kids and her 50-odd grandchildren and great-grandchildren.

She went to the lake for Fourth of July weekend and insisted on diving into its beautiful, clear water one last time.

“That was it,” Hendrickson said. “The grand finale. Five generations. It’s been a love affair.”